America’s retirement predicament

That's the conclusion of authors Monique Morrissey and Natalie Sabadish in their report, "Retirement Inequality Chartbook," released earlier this week by the Economic Policy Institute.

The report shows that the shift to defined contribution plans, such as 401(k) and 403(b) plans, from the old-fashioned pension plan has left most Americans unprepared for retirement.

It's the same refrain we hear over and over, but these stats paint a frightening picture of America's retirement predicament. "Averages can be misleading," the report says. Those numbers are "skewed by large balances at the top." The authors prefer to use median numbers because they provide a more accurate picture of the state of retirement in America.

Bottom line is, the haves have a lot more than typical working Americans. The authors back up their claims with statistics gleaned from the Federal Reserve Survey of Consumer Finances, the University of Michigan Health and Retirement Survey, and the U.S. Census Current Population Survey.

The table below shows that Americans with earnings in the top quintile have substantially more in retirement savings than those at every other income level in households with an age range of 26 to 76. The accompanying table and caption both come from the study.

Median retirement account savings of households age 26-79*, by income fifth (2010 dollars)

Year

Top

Fourth

Middle

Second

Bottom

1989

$45,539

$15,180

$12,144

$5,060

$8,433

1992

$51,546

$18,193

$10,612

$6,367

$12,129

1995

$56,653

$20,679

$11,331

$14,163

$14,163

1998

$90,704

$28,012

$16,007

$12,005

$8,137

2001

$104,156

$37,986

$17,155

$9,803

$6,127

2004

$132,324

$36,821

$19,561

$11,506

$5,753

2007

$145,104

$50,289

$25,144

$12,572

$6,810

2010

$160,000

$36,130

$23,000

$11,000

$8,000

*Median balances are for households with positive savings in these accounts.

Source: "Retirement Inequality Chartbook," Economic Policy Institute.

The median retirement savings for households in the top income fifth is $160,000 compared with $8,000-$36,000 for households in the bottom fourth-fifths. These amounts are for households with savings in retirement accounts. The median for all households (including those with no savings) is close to zero since nearly half of households have no savings in these accounts.

Can employers help?

Coincidentally, human resources consultant Mercer released a report this week encouraging employers to take a more proactive role in the retirement planning efforts of their workers. In "Corporate Retirement Plans: What's the Point?" authors Tom Murphy and Amy Reynolds argue that while employers currently must design retirement plan investment strategies, report account balances and disclose fees, that's just not enough.

"Such an approach does not always provide early warning flags to signal potentially inadequate retirement income for employees; nor does it highlight financial and talent risks that may be emerging for employers," according to the report, which is chock-full of euphemisms. It appears to get to the heart of matters via the cerebral cortex.

I asked Amy Reynolds what is meant by "talent risk." Does she mean that employers will be stuck with older workers and won't be able to hire younger workers or promote them as readily as they'd like?

She replied that companies have been focused on managing expenses and mitigating risk rather than "strategic issues that should frame benefit-related decision making -- namely broader organizational and workforce objectives." So yeah, she affirms. "Organizations with aging workforces may find younger employees have more limited opportunities to advance as a result."

In a nutshell, the Mercer report advises employers to take a more hands-on approach to helping their workers retire with adequate savings by putting in place "action plans to improve projected (retirement) incomes."

Would you find it helpful if your employer got more involved in your retirement planning beyond providing the quarterly statements that you get right now? Would you want your company to help you convert your assets to an income stream in retirement? Or would you rather it mind its own business?

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